Three of Four Major Investor Groups Increased Commercial/Multifamily Mortgage Investments During Q3

December 29, 2011

The level of commercial/multifamily mortgage debt outstanding was essentially unchanged in the third quarter of 2011, as three of the four major investor groups increased their holdings, according to the Mortgage Bankers Association (MBA).

The $2.4 trillion in commercial/multifamily mortgage debt outstanding was just $533 million lower than the second quarter 2011 figure. Multifamily mortgage debt outstanding rose to $806 billion, an increase of $4.1 billion or 0.5 percent from the second quarter.

“Three of the four leading investor groups increased their holdings of commercial and multifamily mortgages during the third quarter,” said Jamie Woodwell, MBA’s Vice President of Commercial Real Estate Research. “Life insurance companies, banks, and Fannie Mae/Freddie Mac/FHA each increased their investments in commercial/multifamily mortgages during the period. The CMBS market, which was sidelined during the quarter by US and European sovereign debt struggles and other capital markets disruptions, saw $7.4 billion more in loans pay-off and pay-down than was added. The net effect was no appreciable change in the amount of commercial/multifamily mortgage debt outstanding.”

The analysis summarizes the holdings of loans or, if the loans are securitized, the form of the security. For example, many life insurance companies invest both in whole loans for which they hold the mortgage note (and which appear in this data under Life Insurance Companies) and in commercial mortgage-backed securities (CMBS), collateralized debt obligations (CDOs) and other asset backed securities (ABS) for which the security issuers and trustees hold the note (and which appear here under CMBS, CDO and other ABS issues).

MBA recently improved its reporting of commercial and multifamily mortgage debt outstanding. The new reporting excludes two categories of loans that had formerly been included – loans for acquisition, development and construction and loans collateralized by owner-occupied commercial properties. By excluding these loan types, the analysis here more accurately reflects the balance of loans supported by office buildings, retail centers, apartment buildings and other income-producing properties that rely on rents and leases to make their payments.

Commercial banks continue to hold the largest share of commercial/multifamily mortgages, $793 billion, or 33 percent of the total.

CMBS, CDO and other ABS issues are the second largest holders of commercial/multifamily mortgages, holding $607 billion, or 26 percent of the total. Agency and GSE portfolios and MBS hold $338 billion, or 14 percent of the total, and life insurance companies hold $310 billion, or 13 percent of the total. Many life insurance companies, banks and the GSEs purchase and hold CMBS, CDO and other ABS issues. These loans appear in the CMBS, CDO and other ABS categories.

MULTIFAMILY MORTGAGE DEBT OUTSTANDING

Looking solely at multifamily mortgages, agency and GSE portfolios and MBS hold the largest share, with $338 billion or 42 percent of the total multifamily debt outstanding. They are followed by banks and thrifts with $217 billion, or 27 percent of the total. CMBS, CDO and other ABS issues hold $94 billion, or 12 percent of the total; state and local governments hold $71 billion, or 9 percent of the total; life insurance companies hold $49 billion, or 6 percent of the total; and the federal government holds $14 billion, or 2 percent of the total.

CHANGES IN COMMERCIAL/MULTIFAMILY MORTGAGE DEBT OUTSTANDING

In the third quarter of 2011, agency and GSE portfolios and MBS saw the largest increase in dollar terms in their holdings of commercial/multifamily mortgage debt – an increase of $5.8 billion or 1.7 percent. Life insurance companies increased their holdings of commercial/multifamily mortgages by $5.7 billion or 1.9 percent. CMBS, CDO and other ABS issues saw the largest decrease of $7.4 billion or 1.2 percent.

In percentage terms, other insurance companies saw the largest increase in their holdings of commercial/multifamily mortgages, an increase of 5.6 percent. The household sector saw their holdings decrease 7.7 percent.

CHANGES IN MULTIFAMILY MORTGAGE DEBT OUTSTANDING

The $4.1 billion increase in multifamily mortgage debt outstanding between the second quarter and third quarter of 2011 represents a 0.5 percent increase. In dollar terms, agency and GSE portfolios and MBS saw the largest increase in their holdings of multifamily mortgage debt, an increase of $5.8 billion, or 1.7 percent. Commercial banks increased their holdings of multifamily mortgage debt by $1.0 billion, or 0.5 percent. Life insurance companies increased by $899 million, or 1.9 percent. CMBS, CDO, and other ABS issues saw the biggest decrease in their holdings of multifamily mortgage debt, by $2.2 billion or 2.3 percent.

In percentage terms, life insurance companies recorded the largest increase in holdings of multifamily mortgages, at 1.9 percent. Finance companies saw the biggest decrease, at 5.2 percent.

MBA’s analysis is based on data from the Federal Reserve Board’s Flow of Funds Account of the United States and the Federal Deposit Insurance Corporation’s Quarterly Banking Profile.